I started my year long contract in Sep 2010 and by the end of the contract i should have around 180 k in my bank account, if i dont spend it.

* I dont have any loans to pay off

* I have a mortgage of 158k @ 5.25%. I bought this house in May 2010. I put up this home on rent which is sufficient to pay off the mortgage premium. Im planning on selling this house when the market improves.

*Because of my job, I just moved to another state and just purchased a house there; a short sale for 316k.

* I have a paid off truck and a leased car with a note of 315/month which i will be returning in august of this year.

How should i invest my money? I now have around 80k in my account. Someone told me to pay more principal on my first mortgage so that I can have more equity when I sell the house. I want to start a small business when my contract is over.

Thanks in advance. I would really appreciate any input, as I have no idea about financial dealings.

Wed Feb 01, 2012 9:51 am

oldguySenior Member

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quote: Someone told me to pay more principal on my first mortgage so that I can have more equity when I sell the house.

Why do you want more equity when you sell? You already have that money in the bank - there isn't much point to moving it into a house, getting it back when you sell the house, and then putting it back into the bank? (I don't prepay 5.25% capital, that is inexpensive use of money)

Not sure I'm understanding your situation. If you are moving often on contract jobs, why are you buying houses? For future rentals? And what is the financing on the second house?

Do you have a family - ie, who is the leased car for?

As for the $180,000 - if you are starting a business, you'll need the money for your start-up costs - and any surplus will go into a reserve account to carry you for a few years until the business starts turning a profit.

Alternately, if you decide to continue working on salary, I would use the $180,000 as seed money. invest it with a no-load company such as Vanguard or Fidelity, put it into an 11%/yr index fund, and leave it alone for a while - at 11%/yr it will be about $1,400,000 in 20 years.

Wed Feb 01, 2012 4:40 pm

coasterSenior Advisor

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Can you refi the first house? 5.25 is a bit on the high side for interest rates these days. Though I have to admit I have no idea on what the market is for refis on rental property, which is a whole different story usually than primary residences.

2) short - medium term: money you might need in five to ten years; for starting a business for example: laddered CDs of longer maturity. Bond funds might be tempting, but I think they're in a bubble and due for a risk of huge capital depreciation sometime in that time frame.

3) long term: money you need for retirement: invested in a combination of appreciating assets; the two principal classes are equities and real estate. You didn't mention age, but if this time horizon is more than twenty years away you can take a fair amount of risk with this allocation.

~Tim~

Wed Feb 01, 2012 4:46 pm

oldguySenior Member

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Tim - the NonOwnerOccupied premium that I'm hearing currently is about 1/2% with 30% Down. So he might get a 4.25% loan plus 1/2%, ie 4.75% at best. It depends somewhat on the terms of his newer house - the lenders will review his entire situation.

Wed Feb 01, 2012 4:53 pm

coasterSenior Advisor

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Hmmmm....unless he put that down when he bought the place, he's not going to have enough equity. Thanks for the info, though.

~Tim~

Wed Feb 01, 2012 5:08 pm

asimusafzaiNew Member

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Thanks both Oldguy and Coaster

I greatly appreciate your quick responses.

Actually this is a one-off contract for me, I am settling down in southern maryland and i should have a federal position after the end of this contract.

We are a family of 3, wife and an 11 year old.

1. Ok, so my mortgage is around 1160/mo on house #1 which is being paid by the rent which im getting from this house. What you guys are suggesting is that I shuld not pay any additional principal.....right?

2. The car is being used by my wife and i will be returning it in august after using it for three years. I normally lease my cars for three years.

3. I will be turning 42 this May, and I do have a retirement account with about 50k in it. I started my US earnings late in my life.

4. You are right the new house is at a 4.75% rate.

5. Though im highly qualified, and Im lucky to have had good positions so far, but I have always been interested in my own business, to be my own boss. Thats why im thinking of starting my business soon. I have some family members who will be running it for me for now. The savings and CD is a great idea too.

Thanks guys again.

Thu Feb 02, 2012 1:53 pm

oldguySenior Member

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quote: I normally lease my cars for three years.

You are continually spending about $4000 per year to borrow a car, over a 30 or 35 yr period, that cuts your 401k by about a million dollars. Why not buy a car, keep it for it's normal life, about 12 yrs or 15 yrs, and spend only $1500/yr for cost of ownership?

As for the mortgages - I would not prepay anything on either of them, US mortgaes are among the lowest cost capital in the world - <5%, fixed rtae, 30 year terms - very inexpensive capital - put it to work somewhere else.

Is your $50k account in a product that averages 11%/yr over 20 or 30 yr periods?

With your skill set (ability to earn $180k quickly) I would avoid a business start up - they have about an 85% failure rate. Make certain that your $230,000 is placed at 11%/yr so that it can grow to $5,200,000 by the time you are my age.

Thu Feb 02, 2012 5:40 pm

randykk3Member

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I think charity is the best option in this regard to earn something in this regard
i really love to give 75% money to charity

Mon Feb 20, 2012 6:40 pm

littleroc02usModerator

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My thinking would be to put the money towards the secondary house if you plan on selling it before you start your business because I'd rather make 5.5% on my money then have it sitting in a bank account making 1%. If you aren't sure about the sale of the property then I would hold onto the money in a money market until you are ready to startup your business. The last thing I would want to do is startup a business with debt, it's to much risk. 70% of businesses fail....

Risk comes from not knowing what you're doing. (Warren Buffet)

Mon Feb 20, 2012 8:20 pm

2StepsFwd1StepBackFull Member

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Re: Thanks both Oldguy and Coaster

quote:Originally posted by asimusafzaiWe are a family of 3, wife and an 11 year old.

Consider a portion of the money into a fund earmarked for college? I didn't see that in your situation or thoughts.

Just my $ .02.

Tue Feb 21, 2012 1:21 am

asimusafzaiNew Member

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Thanks all for these great suggestions.

Tue Feb 21, 2012 11:37 am

loanuniverseContributing Member

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I don't have a new idea, but just to reinforce what people have already mentioned.

A business investment is a good suggestion, but only if it is not a startup {gas stations, franchise sub shops} come to mind if they are already cash flowing or if they are supported by a strong franchisor. The trick is to get a trusty person to manage it.

Sheltering your income from taxes or at the very least the compounding earnings of your income is also good. College funds are a good idea.

Mon Mar 05, 2012 1:38 am

RonaldLeroyMember

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I think paying a mortgage or buying another house are both good choices. It just depends on renting prices and mortgage payments. If you can buy another house and rent it for the same price or higher than mortgage it's worth to buy another house.

Sun Mar 25, 2012 6:19 pm

codyobergNew Member

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In my opinion real estate is the best investment, just make sure you purchase property that will appreciate in value. Be careful with the hard money loans. If you have some homes for rentals they can bring a really good profit each month.

Mon Mar 26, 2012 4:05 am

johnaNew Member

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I would definitely invest in a good used car for your wife. Leasing a vehicle is never a good investment. I would invest in real estate and retirement funds. Your retirement funds seems to be low in comparison to your income.